Author: tarek

The theory that tax cuts for the affluent will eventually trickle down to everyone else is shopworn, yet supply-side adherents keep promising the public that the rich can have their tax cuts and the rest of us will eat cake too.

Despite 35 years of data showing this to be false, the notion has seduced enough policymakers to keep the lights on at Art Laffer’s house.

At least 10 states have tax cut proposals in motion that, unlike the tax shifts we reviewed previously, will not offset cuts by raising other taxes but by raiding surpluses or reducing spending. The overwhelming majority of these proposals will reduce taxes for the best off while doing nothing or little for everyone else, making a regressive tax landscape worse.  Gov. Asa Hutchinson’s overhaul of his state’s income tax and Mississippi Gov. Phil Bryant’s proposal to introduce a state Earned Income Tax Credit (EITC) would actually benefit low- and moderate-income families, but most of the other proposals would lead mainly to benefits for the wealthy.

Over time such tax cuts exacerbate income inequality and stymie opportunity for the masses. Taxes and spending are on a balance scale. Top-heavy tax cuts and their purported economic benefits do not trickle down a rolling hill; they tip the scale in favor of the rich while depriving states of necessary revenue to adequately fund basic services, including education, public safety, infrastructure health and other priorities. Below are some pending proposals:

Arkansas: Gov. Asa Hutchinson fulfilled his campaign promise of passing a middle class tax cut. The governor’s plan introduces a new income tax rate structure for middle income Arkansans. To help pay for the measure the capital gains exemption was reduced from 40 to 50 percent. Using data from ITEP, Arkansas Advocates for Children and Families explains that the taxpayers who benefit from capital gains exemptions are wealthier families.

Florida: Once again, Florida Gov. Rick Scott is pushing lawmakers to enact an unusual hodgepodge of tax cuts.  Under his proposal, taxes on cable TV and cell phone usage would drop by 3.6 percentage points, manufacturing machinery and textbooks would both be exempted from the sales tax, the corporate income tax exemption would be raised from $50,000 to $75,000, and yet another back-to-school sales tax holiday would be held this summer.  The overall cost of this package would be roughly $700 million, and while it’s too early in the session to gauge the chances of passage, there is apparently some skepticism toward the plan in the state legislature.

Idaho: The big tax shift sought by some Idaho lawmakers is off the table for now, but Gov. Butch Otter made clear all along that he prefers a straight-up cut to the state’s corporate income tax rate, and its top personal income tax rate, from 7.4 to 6.9 percent.  Our analysts recently found that such a tax cut would make Idaho’s decidedly regressive tax system even more unfair.  More than three out of every four dollars in personal income tax cuts would flow to the wealthiest 20 percent of households, and members of the top 1 percent would see an average tax cut of over $3,500 each year.  These cuts would come on top of a very similar package of regressive income tax reductions enacted in 2012.

Mississippi: Lawmakers in the Magnolia State can’t seem to get enough of tax cut proposals. In addition to the tax shift proposal passed by the House recently (and written about here), lawmakers are debating a variety of tax cutting measures, which include decreasing personal and corporate income tax rates, introducing a nonrefundable EITC, and eliminating the corporate franchise tax.

Montana: The Montana legislature has approved a bill that would cut personal income tax rates across the board and reduce state revenues by roughly $42 million per year.  ITEP analyzed similar, earlier versions of the cut and found that high-income households would be the largest beneficiaries and that low-income and middle-income taxpayers, who currently face the highest overall state and local tax rates, would receive little or no benefit.  Governor Steve Bullock is likely to veto the plan because of its impact on the state’s ability to fund vital public services.

Nebraska: With the sheer number and diversity of tax cut bills circulating in Nebraska this winter, it seems certain some cut will be enacted.  Much of the focus so far has been on reducing property taxes, a stated priority of newly elected Gov. Pete Ricketts.  Property tax proposals include creating a new refundable, targeted property tax circuit breaker credit for homeowners and renters, introducing a local income tax to reduce reliance on property taxes for school funding, hiking the sales tax rate to pay for a bump in a statewide property tax credit, and increasing personal and corporate income tax rates to pay for property tax cuts. State business leaders, however, have made it clear that income tax cuts are their main concern, and Governor Ricketts has not ruled out the possibility.  One plan being floated would reduce personal and corporate income tax rates over eight years, giving the biggest benefits by far to the richest Nebraskans.

North Carolina (updated 4/6/2015): Two years after North Carolina enacted a sweeping tax cut package, state lawmakers have returned this year with more tax cutting plans that will bust the budget to benefit wealthy residents and profitable corporations.  Senate Republicans have unveiled another round of personal income tax cuts that cost more than  $1 billion when fully enacted and would slash millions of dollars in corporate income taxes. There has also been talk of reducing taxes on capital gains income, restoring items eliminated in 2013 including a deduction for medical expenses and historic preservation tax credit.  What makes these proposals even more egregious is the state’s anticipated revenue shortfall of almost $300 million this year. Lawmakers were forced to close a $500 million revenue gap last year with deep spending cuts after underestimating the steep cost of the tax cuts passed in 2013.  

North Dakota: Just a few short months ago, North Dakota lawmakers were giddy about the idea of using booming oil and gas tax revenue to pay for an elimination or significant reduction of the state’s personal income tax.  But as gas prices plummeted, reality set in and the House approved a scaled back proposal – a 10 percent across-the-board reduction in personal and corporate income tax rates (Gov. Dalrymple also proposed a 10 percent personal income tax cut).  North Dakota lawmakers enacted similar plans in 2011 and 2013, slowly chipping away at the two taxes.

Tennessee: In what’s becoming an annual tradition, multiple Tennessee lawmakers have proposed (subscription required) repealing the state’s “Hall Tax”—a modest 6 percent income tax on interest, dividends, and capital gains income.  As we showed in our recent Who Pays? report, the Hall Tax is a rare progressive bright spot in a tax system that tilts overwhelmingly in favor of affluent households.  Fortunately, leaders in the state’s House and Senate are reportedly unenthused by the idea since Tennessee’s wealthiest households recently benefited from cuts in estate, inheritance, and gift taxes.  And while it’s discouraging that the governor isn’t making principled tax fairness arguments against these proposals, he is very skeptical that the state can afford to get rid of the Hall Tax right now.

Texas: Lawmakers in the Lone Star State hope to enact a tax cut package that would cost about $4 billion over a two year period.  Governor Greg Abbott’s top priority is cutting the business franchise tax, and he has said that he will veto any budget that does not include such a cut.  So far, the main options for reducing business franchise taxes include cutting the rate from 1 to 0.85 percent or raising the exemption from $1 million to $4 million.  The governor would also like to see school property taxes cut, and the Senate seems happy to go along with that idea.  Options currently under discussion include raising the $15,000 homestead exemption to $33,625, or converting it to equal 25 percent of home value.  As we explain in this policy brief, the percentage-based option is less fair than a flat-dollar exemption.  But it’s also important to keep in mind the context provided by Dick Lavine of the Center for Public Policy Priorities: “There’s better uses of this money … than tax cuts.”

Massachusetts Gov. Charlie Baker unveiled his budget last Wednesday, and while it calls for some distressing cuts to state services it also includes a worthy tax policy shift that would help working families. The governor wants to double the state’s Earned Income Tax Credit over three years. Currently, low-income families with three or more children can receive up to $937 under the credit; Baker’s proposal would increase this figure to $1,873. To pay for the EITC expansion, Gov. Baker would phase out the state’s film tax credit, which state reports have found to be inefficient and a waste of taxpayer money. One Department of Revenue report concluded that in 2012 the majority of credits went to just three movies, at a cost of $60.1 million. Attempts to curb the film credit by Baker’s predecessor Deval Patrick were unsuccessful.

Some Texas municipalities fear that state officials have pushed through too many tax cuts, according to a recent Bloomberg Business article. The disconnect, according to some political observers, arises from the popularity of conservative messages around taxation at the state level and the focus on providing services at the local level. While state spending has fallen – Texas is ranked 48th in per-capita spending according to the Kaiser Family Foundation – local governments have borrowed to pick up the slack. According to figures from the state government, local borrowing has increased by 75 percent since 2005 to fund public works necessary for managing economic and population growth.

A South Carolina lawmaker has a new plan that he says will raise an additional $800 million for roads and highways in the state. State Sen. Ray Cleary’s bill would increase the gas tax by 10 cents and index it to inflation, raise the sales tax cap on car purchases from $300 to $1,400, close some sales tax exemptions, and increase fees for licensing and registration. He estimates the changes will cost South Carolina drivers $65 more each year on average. Cleary’s plan would raise revenue, while a proposal offered by Gov. Nikki Haley would result in a net revenue loss. Haley called for an increase in the gas tax coupled with an income tax cut in her state of the state address earlier this year.

Following Up:
Pennsylvania: Gov. Tom Wolf’s budget proposal met mixed reviews from state editorial boards. The Pittsburgh Post-Gazette though his budget was unrealistic and partisan, while The Philadelphia Inquirer called his plan ambitious and a necessary departure from his predecessors.

Mississippi: House Speaker Philip Gunn used a bizarre biblical analogy to assert that his plan to eliminate the state income tax would not lead to lost revenues. Opponents of his plan remain unconvinced.

Florida: House and Senate leaders appear to be on a collision course over balancing the state budget, jeopardizing Gov. Rick Scott’s proposals to cut taxes and increase education spending.

Things We Missed:
Massachusetts Gov. Charlie Baker released his budget last Wednesday – read it here.

Governors’ Budgets Released This Week:
Rhode Island Gov. Gina Raimondo (Thursday)

States That Will End Legislative Session This Week
Arkansas (Thursday)
Utah (Thursday)
West Virginia (Saturday)
Wyoming (Monday)

Pennsylvania Gov. Tom Wolf unveiled his budget proposal this week, delivering his state of the state address before a joint session of the state legislature. Wolf’s proposal would largely shift the responsibility for funding  public education from local property taxes to the state sales and income tax. The flat personal income tax rate would increase from 3.07 to 3.7 percent, and the sales tax rate would rise from 6 to 6.6 percent and would apply to additional goods and services. These changes would bring in an additional $3.9 billion in general fund revenue, most of which would be dedicated to reducing property tax bills by an average of $1,000 per household. About $540 million in new revenues would go to public schools and universities. Wolf also proposed a new severance tax on oil and gas extraction that would replace the state’s one-time impact fee on drilling new wells, with new revenues also earmarked to public education. In a bid to gain bipartisan support, Wolf also proposed significant corporate income tax cuts paid for by closing loopholes and continuing former Gov. Tom Corbett’s plan to phase out the state’s capital stock and franchise tax. (Stay tuned to the Tax Justice Blog for our take on the plan.)

Alabama Gov. Robert Bentley presented his budget proposal to the state legislature this week under the cloud of a $700 million deficit. The governor proposed $541 million in tax increases across eight areas, including the corporate and individual income taxes, excise taxes on tobacco products, and sales and rental taxes for cars. The cigarette tax would increase by 82.5 cents per pack, with commensurate increases for other tobacco products, bringing in $205 million in additional revenue. Increasing the tax rate on automobile sales and rentals from 2 to 4 percent would increase revenues by $231 million. The governor’s finance director assured legislators that the proposed changes would still leave Alabama near the bottom in rankings of tax revenues per capita, but Bentley’s plan will do little to address the regressive nature of the state’s tax system.  (Stay tuned to the Tax Justice Blog for our take on the plan.)

Florida Gov. Rick Scott was the third governor to give a state of the state address today, pitching a combination of tax cuts and spending increases to leery legislators. Scott touted his “Keep Florida Working” budget proposal, which includes $673 million in tax cuts from a variety of sources, including the tax on communication services, sales taxes on college textbooks, and taxes on businesses and manufacturers. The bulk of the cuts — $470.9 million in lost revenue – come from decreasing the tax rate on communication services (cell phones, cable, and satellite television) by 3.6 percent. Scott also pushed for more education funding and a tuition freeze on postgraduate education at state universities.

A new report from the North Carolina Budget and Tax Center reveals that tax cuts pushed by Gov. Pat McCrory (who is expected to release his budget plan this week) and the state legislature have hurt economic growth by starving the state of needed revenues. According to the report, if tax levels in the state were at pre-recession levels, North Carolina would have $3.2 billion additional dollars to invest in early childhood education, access to higher education, anti-poverty measures for senior citizens, affordable health care, wage subsidy programs and court access. The Budget and Tax Center also points out that even though middle- and low-income families saw their overall tax responsibility increase, the massive cuts for wealthy individuals left the state with an annual $1 billion budget gap.

States Starting Session This Week:
Alabama (Tuesday)
Florida (Tuesday)

State of the State Addresses This Week:
Alabama Gov. Robert Bentley (watch here)
Florida Gov. Rick Scott (watch here)
Pennsylvania Gov. Tom Wolf (watch here)

Governors’ Budgets Released This Week:
Alabama Gov. Robert Bentley (read here)
Pennsylvania Gov. Tom Wolf (read here)
North Carolina Gov. Pat McCrory (Thursday)

Mississippi lawmakers are playing a game of one-upmanship when it comes to tax proposals, but the biggest losers could be taxpayers if lawmakers enact one of the more ill-advised plans.

Last week, after just two hours of debate, the Mississippi House passed a bill that would phase out the state’s personal income tax. If passed, the bill could gradually eliminate nearly a third of state revenues. Despite the hollow promises of tax-cut advocates, eliminating the income tax would do nothing to improve employment or economic opportunity in the state.

The new bill, championed by House Speaker Philip Gunn, is the latest example of state lawmakers’ zeal to change the state tax code. Gov. Phil Bryant and Lt. Gov. Tate Reeves have also offered tax cut plans, though their measures are more moderate than the House proposal. Bryant wants to create a non-refundable Earned Income Tax Credit for low- and moderate-income Mississippi families, while Reeves wants to implement a package of income and business tax cuts and eliminate the state’s corporate franchise tax.

Opponents of Gunn’s income tax elimination have derided the plan as “lunacy,” and it is a hard accusation to dispute. Losing its second-largest source of revenue would be a devastating blow for the state, particularly because the effect of any spending cuts would be concentrated on the most vulnerable Mississippians. While the bill does not include any program cuts or new taxes to offset lost revenue, they would surely be necessary.

Supporters of eliminating the income tax are using the widely disproven claim that cutting taxes will boost economic growth, and therefore state revenue. A look at Kansas provides a cautionary tale: lawmakers passed deep income tax cuts using the same rubric only to slash spending later, and now the state’s conservative governor is proposing regressive consumption tax hikes.

Eliminating Mississippi’s state income tax would do little to support working and low-income families since most of the benefits would accrue to the wealthy. ITEP data shows that 65 percent of the tax cut would go to the top fifth of earners, and that the top one percent of earners would get an annual average tax cut of $20,000 if the policy were fully implemented.

Supporters believe they have answered the complaints of critics by including growth triggers in their proposal. Each phase in the income tax elimination could only proceed in years when state revenue grows by at least 3 percent. In reality, the triggers only expose their cynicism. Revenue growth in the state has slowed over the past 15 years, from 7.22 percent annually in 2000 to about 3.5 percent recently. The culprits for declining revenue growth are rising income inequality and a dampened economy, which cut into the sales tax revenues that Mississippi relies upon heavily. In fact, revenue growth from 2010 to 2013 was driven by income and corporate tax collections – the same sources that some state leaders want to cut. Supporters of eliminating the income tax either know this information and are pushing triggers to look “responsible,” or they don’t know this information and are dangerously ignorant of state finances.

Mississippi has been the poorest state in the nation across a variety of measures since at least 1931. Today, the median net worth of a Mississippi household is half the median net worth of the average American household, and the state fares poorly on indicators related to poverty – life expectancy at birth, educational attainment, employment, and obesity, among others. The people of Mississippi sorely need economic growth, but because their leaders rely on tax cuts as an economic development strategy no growth is forthcoming.

The true drivers of growth – workforce quality and new markets for goods and services – have seen systematic under-investment, leaving Mississippi underdeveloped. A strong workforce and economic climate aren’t cheap, and more tax cuts will just move the state further backward. It’s a shame that today’s leaders will repeat past mistakes, but it was Faulkner who wrote, “The past is never dead. It’s not even past.”

Notorious tax dodger GE recently released its annual financial report and the only thing eye-raising about the company’s paltry 0.9 percent federal income tax rate is that it’s marginally higher than the 0.4 percent average rate it paid over the past decade.

Released without fanfare late in the afternoon last Friday, GE’s latest annual report shows the company enjoyed $5.8 billion in pretax U.S. profits in 2014, but paid just $51 million in federal income taxes. In other words, GE remains a champion tax dodger. Whether it can continue to avoid taxes may depend upon what Congress decides to do about one of the misguided tax breaks that helps make GE’s tax avoidance possible, a tax break that expired at the end of last year.

The tax break in question, the “active financing exception,” has come back from the dead before.  Repealed as part of the loophole-closing Tax Reform Act of 1986, Congress temporarily reinstated the active financing exception in 1997 after fierce lobbying by GE and other multinational financial companies. Since then, lawmakers have extended it numerous times, usually for one or two years at a time and often retroactively.

This tax loophole allows American corporations to indefinitely defer paying U.S. taxes on their offshore profits, but there is a general rule (often called “subpart F” in reference to the part of the tax code that spells it out) that corporations cannot defer U.S. taxes on dividends, interest or other types of “passive” income. That’s because these types of income are easy to shift from one country to another to avoid taxes. The “active financing exception” is an exception to subpart F. As a result of this “exception,” companies like GE can indefinitely avoid paying taxes to any nation on much of their financing income, by claiming that they earned the profits in in offshore tax havens.

The active financing exception has been repeatedly extended as part of the so-called “extenders” —   legislation that Congress enacts every couple of years to continue a package of (ostensibly temporary) tax breaks for business interests, and is one of dozens of “extenders” that expired at the end of 2014.

GE won’t disclose just how valuable the active financing rule is to its bottom line. But when the tax break was set to expire in 2008, the head of the company’s tax department infamously went down on one knee in the office of the Ways and Means Committee chairman Charles Rangel to beg for its extension. In GE’s annual reports to shareholders, it notes that “[i]f this provision is not extended, we expect our effective tax rate to increase significantly.”

It’s hard to know what “significantly” means to a company that pays virtually nothing in federal income taxes. But at a time when both President Barack Obama and Democrats in the House are proposing sensible strategies for increasing taxes on the financial sector, it’s worth remembering that the active financing exception plays a significant role in the ability of many large U.S.-based financial institutions besides GE to pay low effective U.S. tax rates.

With the lobbying power of GE and the financial services industry, it will sadly be no surprise if congressional lawmakers ride to the rescue of low-tax multinationals once again. But the $5 billion a year price tag of the “active-financing exception” should be a good reason for Congress to sit on its collective hands and let this tax giveaway stay dead. GE will undoubtedly survive if its tax bill goes up a bit.

A decade and a half ago, the federal government was running a surplus, the economy was humming along, poverty had continually declined for the previous seven years, and the Republican candidate for president essentially told the nation we could cut taxes and maintain the status quo.

Today, the Republican-led Senate Finance Committee held a hearing on tax fairness featuring none other than Larry Lindsey, the architect of the Bush tax cuts, as the chief witness. This is quite alarming since the Bush tax cuts did more to undermine tax fairness and adequacy than any other legislation since 1981. The nation is still reeling from its effects.

It may be hard to believe now, but when then-presidential candidate George W. Bush put out his tax plan, in late 1999, Lindsey argued that the proposed tax cuts would make the tax system fairer.

“Governor Bush’s tax cuts would reduce income taxes for all Americans,” he said, “but would especially benefit lower and middle-income families. . . . More affluent Americans also receive a tax cut, but they will also shoulder a larger portion of the federal income tax…. The result is an income tax burden that is fairer.”

But this was pure sophistry. The Bush/Lindsey plan was designed to lower the progressive personal income tax while leaving untouched other, more regressive taxes levied by the federal government. Since these other taxes, including payroll and excise taxes, capture far more income from working low-income families, reducing their relatively low personal income taxes didn’t make much of a dent in their overall federal tax load. But because the personal income tax is the primary federal tax paid by the best-off Americans, even a 10 percent cut would dramatically reduce their tax bill. Put another way, the Bush tax cuts resulted in the best-off Americans paying a slightly smaller share of a much smaller pie, with close to half of the tax cuts going to the best-off one percent.

Lindsey also used gimmicks to make the Bush tax cuts look far less expensive than they actually were. When Bush announced his plan, Lindsey and others pegged the 10-year cost at $1.3 trillion. But, as CTJ’s tax policy team discovered, it turned out that Lindsey’s policy team had found a way to shave hundreds of billions off the apparent cost of the Bush plan by designing it in a way that would force 20 percent of Americans to pay the Alternative Minimum Tax (AMT), a backstop tax designed to prevent tax-dodging by high-income Americans. So, Bush proposed to dole out large tax cuts to almost, but not quite rich families, and then quietly take a big chunk of them back through the AMT.

Of course, no one thought for a minute that Congress would actually allow the AMT to swallow the upper middle class, and in fact, Congress fixed that problem soon after it passed the Bush tax cuts. But this ruse helped Lindsey and the Bush administration to low-ball the cost of their tax plan by about 25 percent.

In addition, many of Bush’s proposals were to be phased in over half a decade or more, the full impact of the tax cuts on federal revenues was muted. But in 2004, the phase-ins were sped up. As a result, the supposed $1.3 trillion ten-year tax cut turned out to cost twice as much as originally billed.

Maybe Senate Finance Committee Republicans are looking to Lindsey to help them repeat the chicanery that helped get the Bush tax cuts enacted. If so, everyone should be worried, since he was very good at hiding the truth back then.

In preparation for a Senate Finance Committee hearing on “Fairness in Taxation” on Tuesday morning, the Joint Committee on Taxation (JCT) issued a report diving into the distributional impact of the federal tax system. Unfortunately, this report leaves out a lot of crucial context for its numbers, which will likely allow advocates of tax cuts for the rich to spin the numbers to make the tax system sound significantly more progressive than it actually is. Here are some important points to keep in mind:

1. The overall tax system is just barely progressive.

First, it is critical for lawmakers not to just look at the federal tax system in isolation, as the JCT report does, but at the tax system as a whole. While the federal tax system is generally progressive, state and local taxes are notoriously regressive. In fact, a recent report by the Institute on Taxation and Economic Policy found that the poorest 20 percent of taxpayers pay about twice the state and local tax rate of the top 1 percent.

A study of the overall tax system in 2014 (including federal, state and local taxes) by Citizens for Tax Justice (CTJ) found that our tax system is just barely progressive overall. For example, the richest taxpayers are paying tax rates very close to the rates paid by middle class Americans, with the middle 20 percent of taxpayers paying a 25.2 percent rate and the top 1 percent paying 29 percent on average. In addition, each income group’s share of total taxes paid closely mirrors their share of total income, with the top 1 percent paying 23.7 percent of all taxes while earning 21.6 percent of all income.

2. The tax system is not getting any fairer.

Opponents of raising taxes on the rich will likely point to the tables in the JCT report showing that the share of income taxes paid by the top 20 percent of households has gone up significantly in recent years, from 55.4 to 68.7 percent in 2011 to argue that taxes on the rich are at historic highs and should not be increased further. What this argument misses is that the portion of taxes paid by the rich have grown largely due to the increasing share of national income earned by the wealthy, rather than any increase in the progressivity of the tax system itself.

Providing insight on this issue, the JCT report shows that the progressivity of the federal tax system in 2011, as measured by the Reynolds-Smolensky index, is at precisely the same level as it was in 1980. Because income inequality has grown since 1980, this means that the federal tax system is having less of an impact that it once did in reducing income inequality overall. In fact, the federal tax system only reduced income inequality (as measured by the Gini Index) by 8 percent in 2011, in contrast to 9.5 percent in 1980. If anything, lawmakers should increase the progressivity of the tax system so that it can further reduce income inequality, rather than letting its positive impact stagnant or even decrease.

3. Wealthy investors pay a lower tax rate than other members of the top 20 percent.

One final point to keep in mind when discussing fairness in the tax code is that the preferential rate on capital gains and dividends allows many in the top 20 percent of taxpayers to pay a lower tax rate than the middle class. In its overall look at the distribution of the tax system, the JCT found that in 2011 the middle 20 percent of taxpayers paid a total federal tax rate of 11.2 percent, while the top 20 percent paid an overall tax rate of 23.4 percent. This comparison could be used to create the impression that all wealthy individuals are in fact paying their fair share, but grouping all of the top 20 percent together ignores the fact that they may pay significantly different tax rates depending on what percentage of their income comes from investment income, and thus is subject to a preferential rate compared to wage income.

When you break out those wealthy individuals, like Warren Buffett, who earn a significant amount of income from capital gains or dividends, the tax system ends up looking a lot more regressive. For example, in 2011, a taxpayer making between $60-65,000 would pay an average effective tax rate of 21.3 percent, yet a taxpayer making more than $10 million primarily through investments would have only paid an average effective tax rate of 15.3 percent. To make the tax system truly progressive, lawmakers should end the preferential tax rate for investment and tax it like wage income.

Iowa lawmakers passed, and Gov. Terry Branstad signed, a measure increasing the state’s gas and diesel taxes by 10 cents this week. The increase will generate about $200 million in new revenue each year that will help cover a shortfall in transportation funding. A recent poll showed Iowans almost evenly split on the measure, though the proportion of those in favor has grown by 19 percentage points since 2011. The increase could go into effect as early as this Sunday and will result in Iowa’s gas tax rate no longer being at its all-time historic low.

Two Illinois legislators recently introduced a measure that would tax high-sugar beverages. The bill, sponsored by State Sen. Mattie Hunter and State Rep. Robyn Gabel, would introduce a penny-per-ounce excise tax on beverages with over 5 grams of sugar per 12 ounces. It would produce $600 million in new revenue each year, to be earmarked toward programs promoting healthy eating and physical activity as well as prevention services in Medicaid. If passed, the measure would be the second tax on sugary drinks in the United States; the city of Berkeley, CA introduced such a tax via a ballot measure last year.

Integrity Florida released a report on corporate tax dodgers this week using ITEP data. They found that Florida taxpayers subsidized the seventeen Fortune 500 companies headquartered in the state, via state government contracts and direct subsidies, to the tune of about $2.5 billion. Meanwhile, these same companies have paid just over $945 million in all state taxes nationwide (including taxes paid to states other than Florida). In fact, even though Florida’s state corporate income tax rate is 5.5 percent (among the lowest in the country), the most profitable Fortune 500 companies have been paying less than half that rate. The report’s authors recommend more transparency around corporate profits and tax payments.

More business owners are taking advantage of a Kansas tax feature than previously predicted, further endangering the state’s fragile revenues. State lawmakers eliminated income taxes for owners of limited-liability corporations and S corporations as a part of Gov. Sam Brownback’s tax plan in 2012. The measure was expected to benefit 191,000 business owners, but 333,000 have since claimed the loophole at a cost to the state of $206.8 million. The governor’s staff, who originally claimed the feature would spur economic growth, says the increase in filers represents new businesses opening shop. Opponents say it’s unfair to exempt business owners from income taxes while requiring their employees to pay income tax, and that the exemption should be discontinued given the state’s $700 million deficit this fiscal year.

Governor’s Budgets Released This Week:
New Jersey Gov. Chris Christie (read here)
Louisiana Gov. Bobby Jindal (read here) 

Political nerds and TV binge watchers of all stripes will gather around the TV (or laptop) this weekend to watch the much anticipated release of Season 3 of the Netflix original series House of Cards. While the show follows the shadowy manipulations of Frank Underwood, the company and producers behind the show have done some manipulating of their own to get millions in generous tax breaks from the state of Maryland for the production of its third season.

Last year, the producers of House of Cards played hardball with Maryland lawmakers by threatening to “break down our stage, sets and offices and set up in another state” if they did not receive millions more in tax credits. Pairing this stick with a carrot, the House of Cards producers brought in Kevin Spacey to meet with “star-struck” lawmakers and push for the passage of more tax breaks for the TV series.

The trouble for Maryland lawmakers is and continues to be that the film tax credit program lavishing House of Cards with millions in tax breaks provides very little economic benefit to Maryland taxpayers—in fact, the entire program has cost the state $62.5 million since 2012. A recent study by the Maryland Department of Legislative Services found that the film tax credit in Maryland only brings in 10 cents for every dollar that it provides in economic benefits.

Unfortunately, the lawmakers in Maryland are reflective of lawmakers across the nation, who keep falling for the siren call of film producers and ponying up ever larger tax credits to companies in hopes of creating a lasting film industry in their state. Leading the pack, Louisiana spent over $1 billion on its film tax credit program from 2002-2012, yet the state still has very little to show in terms of permanent jobs and economic development benefits from the program.

In spite of all of the evidence against film tax credits, Maryland lawmakers, fearful of “losing” the Netflix series, decided to give in and increased the size of the credits for House of Cards, bringing the total amount of tax breaks that the show has received to a whopping $37.6 million. What makes these tax breaks particularly galling is that Netflix is already exploiting the stock option loophole to such an extent that it paid nothing in federal or state corporate income taxes on its $159 million in profits, even before it received the new cache of tax breaks.

The tax swindle that Netflix is running with the production of House of Cards would be enough to make Frank Underwood proud. 

Just last week we wrote about the trend of tax shifts sweeping the nation. Policy makers in Ohio, Maine, Idaho, Michigan, South Carolina, and New Jersey are seriously considering regressive tax proposals that would shift taxes away from higher-income taxpayers who have more ability to pay to those with less. Now we can add Georgia to that notorious list. Earlier this week, lawmakers introduced House Bill 445. The measure would lower the state’s top income tax rate from 6 to 4 percent and raise the sales tax from 4 to 5 percent. An ITEP analysis of this, likely regressive tax shift, will be forthcoming. In the meantime read these thoughtful pieces – here and here (which cite ITEP data) about Georgia’s already inequitable tax system.